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Case Analysis: AREVA
AREVA provides solutions for CO2
free electricity generation,
transmission and distribution
I. Areva as a whole
II. Fuel Fabrication: rods assembly line
Outline:
Daphnée Hus - Elodie Ragot - Hélène Falipou - Maïté Saulnier - Nicolas Janin
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Income Statement, 1st Semester 2007In millions of euros H1 2007 H1 2006 2006
Sales revenue 5 373 5 036 10 863
Other income from operations 12 7 55
Cost of sales -4 301 -4 088 -8 698
Gross margin 1 084 955 2 220
Research and development expenses -197 -161 -355
Sales and marketing expenses -252 -244 -493
General and administrative expenses -424 -375 -778
Restructuring and early retirement costs -17 -43 -131
Income from cash and cash equivalents 20 31 50
Gross borrowing costs -32 -35 -78
Net borrowing costs -12 -4 -29
Other financial income 130 36 126
Net financial income 118 32 97
Income tax -53 -36 -51
Net income of consolidated businesses 273 110 453
Share in net income of associates 34 104 220
Net income from continuing operations 306 214 672
Net income from discontinued operations 0 2 0
Net income attributable to equity holders of the parent 295 245 649
Average number of shares outstanding 35 442 701 35 442 701 35 442 701
Basic earnings per share 8.31 6.88 18.31
Adjusted earnings per share 8.31 6.92 18.31
Gross Margin: 1084 M€;
Net Financial Income: 118 M€
Overheads
Big difference = a lot of Overheads
I. 1)
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Simplified balance Sheet, 1st Semester 2007
In millions of euros
6/30/07 12/31/06
ASSETS
Goodwill
2 602 2 515
Property, plant and equipment and intangible assets
5 265 4 988
Assets earmarked for end-of-life-cycle operations
5 205 5 077
Investments in associates
1 474 1 521
Other non-current financial assets
2 685 2 376
LIABILITIES AND EQUITY
Equity
7 288 7 016
Provisions for end-of-life-cycle operations
4 680 4 585Other provisions (including net deferred tax liabilities)
3 401 3 274
Net working capital requirement
298 736
Put option held by Siemens
1 117 1 117
Net debt (excluding Siemens’ put)
448 -251
Simplified balance sheet total
17 232 16 478
Net debt (including Siemens’ put)
-1 565 -865Net debt (excluding Siemens’ put)
-448 251
VARIATION: 60 %
working capital = net balance of operating uses and sources of funds
If WCR>0: uses of funds exceed sources of funds, if WCR<0: sources of funds higher than uses
WCR<0 corresponding to a net use of customer advances and prepayments
I. 2)
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Fuel assembly factory
Value Chain:
Cost object:
Fuel rod
Caps
Tube
Fuel
Fuel assembly
Skeleton
Fuel rods
Cost object
Research and
Development Design Supply
Marketing and sales
PRODUCTION Distribution Customer
service
Developing
Make to order
Adaptation to customers’ needs
Internal suppliers
Core process
Pull production
Market decisions: Price setter
Long-run pricing
High quality/High price
Product-life cycle: Maturity
II. 1)
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Costs
Example of product costs:
Direct materials: raw materials (skeleton, caps, tubes, nuclear fuel…)
Direct labour: people who work more than 75% in production (workers of the production process line)
Manufacturing overheads:
Indirect material: paper, gloves to protect workers…
Indirect labour: employees from maintenance of machinery…
Indirect manufacturing expenses: lighting, heating and insurance…
Example of period costs: marketing and sales, accounting…
Variability of costs:
Fixed costs: salary, maintenance…
Variable costs: row materials…
II. 2)
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ABC system
Hierarchy Examples Cost drivers
Unit-level Assembling a fuel assembly Duration:
Number of hours of direct labour
Batch-related
Setting up machines to control the level of uranium enrichment
Processing a purchase order (fuel assemblies with the same uranium enrichment)
Transaction:
Number of set-ups
Transaction:
Number of orders
Product-sustaining
Designing the fuel rods (length, soldering) and the skeleton given the uranium enrichment
Duration:
Number of product development hours
Facility-sustaining
Renting the plant Transaction:
Number of square metres
Costing systemJob-costing : Each fuel assembly has its own characteristics and is unique,
ABC : - More details and focuses on activities and cost drivers
- Talks the language of the organization
II. 3)
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EU, Normal, Abnormal losses
Abnormal losses Uranium loss
Normal losses Bad soldering (due to worker´s mistakes),
Tube and cap losses (0,5% of tolerated losses due to suppliers)
1 Fuel assembly
= 200 rods + 1 skeleton
Equivalent Unit ?II. 4)
We can count the number of components integrated at each stage of the process
we can determine the cost of a product not yet finished
without using the concept of EU
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Management Control
Result Control Graph results
Information display, where everybody can see the results, the objectives and so on…
Responsibility centre Profit centre
The fuel assemblies are sold to another branch of AREVA company
Cybernetic control system Weekly meeting
Feedback from the workers
Continuous improvement policy
0
10
20
30
40
50
60
70
80
90
Week A Week B Week C Week D
Budget limitation
AN INFORMATION DISPLAY
II. 5)
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Budgeting process
REACTORS SECTOR
AREVA NC
Factory B
AREVA NP AREVA T&D
FUEL SECTOR NUCLEAR SERVICES SECTOR
DESIGN & SALES BU
FUEL MANUFACTURING
BU
ZIRCONIUM MANUFACTURING
BU
FBFC
Factory A Factory C Factory D
Activity based budgeting: Estimation of the customers’orders for the next year.
Estimation of resources needed
Bottom-up system
EQUIPMENT SECTOR
II. 6)
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Relevant Costs
Should a second assembly line be created?
In the fuel assembly factory, old machines are not allowed to be resold after use (remaining radiation)
No disposal value
Qualitative aspects Quantitative aspects = relevant costs
• Meeting of the customers’ needs
• Changes in the labour organization
• Meeting of the standards (nuclear regulation)
• Modernity
• Set-up costs
oconsultancy firmsobuilding firmsonew equipments
• Operating costs
odirect labour (new workers)ofactory overheads (electricity…)odirect materialsoproductivity (cost per unit)
II. 7)